Europe's story today was multi-month record deterioration in equity and credit markets. The turning point appears to have been the market's recognition of what LTRO really is and LTRO2 pretty much marked the top. While recent weakness has been exaggerated by the JPMorgan debacle (contagion to 'cheaper' hedge indices in credit), the Greek reality and clear contagion of a Euro / No-Euro decision any minute has Spanish, Italian, and Portuguese equity and credit markets crashing lower (from already Tilson-clutching lows). Spanish bond spreads are 160bps wider since LTRO2 and Italy 87bps wider with today's +28bps in Spain taking it to all-time record wides (pay less attention to yields now as they will be flattered by the ripfest run to safety in bunds), Portugal is back above 1100bps in 5Y CDS, but most critically - given LTRO's unintended consequence of encumbering the weakest banks exponentially to the domestic sovereign - the LTRO Stigma is up more than 200% from its lows when we first pointed out the reality. Banks who took LTRO exposure are on average almost at record wides (with many of them already at record wides). European equities are weak broadly but remain above their credit-implied levels as investment grade and high-yield credit in Europe falls back to four-month lows (almost entirely eradicating the year's gains) while the narrower Euro Stoxx 50 equity index is down significantly YTD. short- and medium-term EUR-USD basis swaps are deteriorating rapidly once again as clearly funding is becoming a major issue in the Euro-zone.
Portugal's Stock index back to 1996 levels (as bonds near all-time wides)...
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Spanish Bond spreads broke last year's wides and are back to their worst levels since pre-Euro in 1995...
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European sovereigns are starting to accelerate wider - especially Italy and Spain...
and European credit (IG and HY) are underperforming stocks...
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But digging into the details, financials are plagued with any bank facing the LTRO extremely weak - as LTRO Stigma is more than a triple off its lows and heading to record wides...
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And with all the fungibility questio0ns and lack of trust, EUR_USD basis swaps are at 4 month lows indicating funding pressures picking up rapidly once again...
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Chart: Bloomberg